In the recent Supreme Court case Michaelides v Cooperative Bank of Pegia (Civil Appeal 477/2012), dated 27 June 2018, the appellants appealed the first-instance judgment of the Paphos District Court allowing the registration and execution of an arbitral award.
The dispute between the parties was related to a bond signed by the appellants. Following the arbitrator's appointment, both parties were requested to appear before him, in order to consider the dispute. However, the appellants did not attend the arbitration procedure and therefore the arbitrator proceeded to examine the dispute in their absence.
On 11 June 2009 the arbitrator issued an arbitral award against the appellants and in favour of the respondents for the amount of €770,541.62, plus interest and expenses, and issued a mortgage disposal order which was signed as a guarantee by the appellants.
Although the arbitral award issued by the arbitrator was served on the appellants, none of them appealed it during the timeframe provided by the Cooperative Societies Laws 1985. Following the application of the respondents to have the arbitral award recognised and enforced, the appellants appeared in the proceedings and filed an objection.
The first-instance court rejected all of the appellant's grounds of objection and applied the well-established principle that the registration of an arbitral award is a formality in which the district court does not proceed to examine the merits or substance of the arbitral award.
The appellants raised several arguments in challenging the first-instance judgment. Among other things, they supported that:
- the court wrongly decided that the registration of an arbitral award was a typical procedure;
- the court should have examined their argument that a specific provision of the law conflicted with the constitutional provisions of having access to the court and the right to a fair and public hearing and also EU Directive 1993/13/EEC, which was embodied in Cypriot law; and
- the court did not consider the fact that the respondents did not provide any oral evidence in order to substantiate their claims in the arbitration procedure.
The court proceeded to examine the arguments of the parties and dismissed the appellants' grounds of appeal. Specifically, the Supreme Court endorsed the approach of the first-instance court which was based on well-established case law. Further, the Supreme Court explained that since the requirements of the law – through which the respondents sought the registration of the arbitral award – were not challenged by the appellants, the only matter left before the first-instance court was the recognition and enforcement of the arbitral award without having to examine the substance of the dispute.
In relation to the argument that specific provisions of the law conflicted with constitutional provisions, the Supreme Court explicitly stated that there is nothing in the Constitution which precludes the referral of a dispute to arbitration whether this is stipulated by statute or through a private agreement.
Moreover, the Supreme Court pointed out that arbitration as a process complements the operation of any modern legal system. The court further explained that the law guarantees the right to anyone who considers themselves as having been wronged by an arbitral award to appeal to the court. Given that the appellants were informed of the arbitral award but failed to exercise their right to challenge it in court, the award became final. The court's jurisdiction at first instance is exhausted in simply examining whether the said award fulfils all of the necessary requirements.
The Supreme Court then proceeded to examine whether the law conflicted with the EU directive mentioned above. The court explained that while the Unfair Consumer Terms Law (93(1)/1996) provides that terms which "exclude or hinder the consumer's right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions" fall within the scope of practices considered as 'unfair', in the present case the appellants had agreed prior to signing the agreement to resolve their dispute through arbitration.
The Supreme Court rejected all arguments provided by the appellants and dismissed the appeal in its entirety.
For further information on this topic please contact Angela P Christodoulou at George Z Georgiou & Associates LLC by telephone (+357 22 763 340) or email ([email protected]). The George Z Georgiou & Associates LLC website can be accessed at www.gzg.com.cy.
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